Relationship between the Altman Z Score and Stock Prices of Indian Manufacturing Firms
DOI:
https://doi.org/10.12725/ujbm.69.3Keywords:
Z score, Stock market, India, bankruptcyAbstract
Purpose
This study investigates the relationship between the Altman Z-Score and stock prices of Indian manufacturing firms to evaluate its efficacy as a predictor of financial distress and aid in investment decision-making.
Methodology
The research employed an explanatory design, analyzing financial data of 18 randomly selected listed manufacturing firms in India over five years. Altman Z-Scores were calculated using financial ratios, and their trends were compared with stock price movements. Hypothesis testing was conducted to establish correlations between Z-Scores and stock prices.
Findings
The analysis revealed that the Altman Z-Score effectively predicts corporate financial health. Firms with declining Z-Scores showed signs of financial instability, often entering the distress zone, while firms with stable or improving Z-Scores demonstrated financial resilience. A significant correlation was observed between Z-Scores and stock price trends, underscoring its predictive reliability.
Practical Implications
The Altman Z-Score provides investors and corporate decision-makers with a robust tool for assessing financial health, identifying warning signs of potential distress, and formulating strategic responses. It also supports more informed investment choices based on a company’s financial stability.
Future Research Direction
Further studies can expand the application of the Altman Z-Score to other industries, integrate non-financial variables such as management practices, and compare its predictive accuracy with alternative financial models across diverse economic contexts
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